dollar boat in the bad weather illustration economic instability

As climate change risks loom ever larger over the financial sector, regulators in the U.K. are launching an initiative to help both the financial industry and other regulators combat the threat.

The U.K.’s Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) convened the inaugural meeting of the Climate Financial Risk Forum (CFRF), which brings together  regulators, banks, insurers, asset managers and other industry firms to develop and share best practices for responding to the financial risks posed by climate change.

“While these risks may crystallize in full over longer-time horizons, they are becoming apparent now,” the regulators said. “Firms are enhancing their approaches to managing these risks, but face barriers to implementing the forward-looking, strategic approach necessary to minimize the risks. The CFRF aims to reduce these barriers by developing practical tools and approaches to address climate-related financial risks.”

At its first meeting, the CFRF set up four working groups to focus more intently on certain areas. The four groups will develop specific guidance on risk management, scenario analysis, disclosure and innovation.

“The first forum meeting today was an important step in tackling a major threat to the future stability of the financial system,” said Andrew Bailey, CEO of the FCA. “The Climate Financial Risk Forum will seek to encourage approaches in the financial sector, managing the financial risks from climate change as well as supporting innovation in green finance.”

“Climate change has the potential to create significant financial risks for the firms the PRA regulates. The challenge we face in mitigating these risks is unprecedented, and we need to begin to act now if we are to ensure an orderly transition to a low-carbon economy,” added Sam Woods, CEO and deputy governor of the PRA.

The initial membership of the CFRF includes global banking giants such as BNP Paribas, HSBC and JP Morgan; major asset managers including Blackrock, Invesco and Hermes; and insurers Aviva, Lloyd’s of London and RSA Insurance Group.